The role of human capital in finance : growth nexus

Abstract

This study investigates the role of human capital in the finance-growth nexus across 44 African countries from 1993 to 2022. Using a novel composite financial development index and the Panel Smooth Transition Regression (PSTR) method, the research finds that human capital, particularly when measured by life expectancy, significantly enhances the growth-promoting effects of financial development. The results indicate that financial development positively impacts economic growth, with a stronger effect observed in countries with higher human capital levels. The study highlights the importance of both education and health in fostering economic growth and suggests that policymakers should focus on improving human capital alongside financial sector development to achieve sustainable growth.